Eye opener: Bonus share not everyone's cup of tea; nearly 56 per cent stocks delivered negative returns post adjustment!

Only one stock turned out to be mutlibagger i.e. BLS International which jumped over 106.14 per cent. Interestingly, BLS International issued bonus shares two times in CY22.

The Indian equity markets in the calendar year 2022 (CY22) has been on a roller coaster ride. Despite the fluctuations, the Nifty50 index has delivered returns of 4.33 per cent, which is much better than the performance shown by the western counterparts. However, the broader markets have been the dark spot, as broader indices have underperformed the frontline indices. 

Amidst all this, corporate action played a crucial role in CY22 as many empirical studies suggest that the market reacts positively to most of the corporate action news. One of the most famous corporate actions is issue of Bonus Share. 

What is Bonus Issue? 

This is an issue of shares to existing shareholders without any consideration. With bonus issue the number of shares increases but it does not alter the value of the company as the prices get adjusted accordingly. 

The announcement of bonus shares shows that a company is confident of the future and, therefore, the stock price moves up. 

In CY22 more than 150 companies announced issue of bonus shares and we have gauged the performance of some well-known stocks from the date of ex-bonus to date (December 30). 

We have considered nearly 43 stocks in our study and here are some interesting finds from the study- 

1.      Nearly 56 per cent of the stocks (24) delivered negative returns with 17 stocks delivering loss of more than double digits. Nadan Demin lost the most, i.e. 58.6 per cent. 

2.      Only 44 per cent of the stocks (19) delivered positive returns and only 6 stocks delivered more than double digit gains. Only one stock turned out to be mutlibagger i.e. BLS International which jumped over 106.14 per cent. Interestingly, BLS International issued bonus shares two times in CY22. 

Here is the complete list- 

From the above study we may draw this conclusion that for many companies bonus announcement is merely a strategic ploy to boost market sentiment and investor confidence in the company, as it may not have the desired effect on the stock price. Though in the short term the announcement of bonus share may propel the stock price but in the long run it’s the fundamental which give direction to stocks.